CE Special Issue - COVID-19
Challenges of Contemporary Economics


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Volume 14 (2020) Volume 13 (2019) Volume 12 (2018) Volume 11 (2017) Volume 10 (2016) Volume 9 (2015) Volume 8 (2014) Volume 7 (2013) Volume 6 (2012) Volume 5 (2011) Volume 4 (2010) Volume 3 (2009) Volume 2 (2008) Volume 1 (2007)

Volume 9 Issue 2 (2015)

Poverty in the regions of the European Union – measurement with a composite indicator original article

pp. 113-154 | First published in 30 June 2015 | DOI:10.5709/ce.1897-9254.163

Dorota Węziak-Białowolska


We measure area-specific human poverty in the European Union (EU) at the second level of the nomenclature of territorial units for statistics (NUTS 2). We construct a regional human poverty index (RHPI), which comprises four dimensions: social exclusion, knowledge, a decent standard of living, and a long and healthy life. The RHPI provides information regarding the relative standing of a given country with respect to its level of poverty and shows the variability of poverty within a country with respect to NUTS 2. The RHPI shows satisfactory statistical coherence, confirmed by the results of correlation analysis and a principal component analysis. As confirmed by an uncertainty analysis, the RHPI also shows satisfactory robustness to the normative assumptions made during the construction process. The RHPI is computed for all NUTS 2 regions in 28 EU countries. Our results show that the poverty scale differs considerably among EU countries, with RHPI scores ranging between 9.23 for Prague and more than 65 for Bulgarian Yugoiztochen and Severozapaden. We also find that substantial differences in levels of poverty between regions are present in all EU countries. The only exceptions to this finding are small EU countries where neither NUTS 1 nor NUTS 2 regions exist.

Keywords: composite indicator, European Union, NUTS, poverty, uncertainty analysis

Political-Ideological Circumstances and Local Authorities’ Debt: Evidence from Portuguese Municipalities original article

pp. 155-170 | First published in 30 June 2015 | DOI:10.5709/ce.1897-9254.164

Nuno Adriano Baptista Ribeiro, Susana Margarido Faustino Jorge


The objective of this research is to analyze whether the political-ideological situation of municipalities affects their debt level, considering evidence from Portugal for the period 2004-2013. A static panel data model is applied, incorporating factors such as political ideology, political-electoral cycle, governance format, coincidence of the political parties between Local Executive and Local Assembly and coincidence of the political parties between the Local Executive and Central Government. An additional variable to control the effects of the economic crisis between 2008 and 2010 is also considered. Based on the assumptions of the public choice theory, findings show a statistically significant relationship for the political-electoral cycle, allowing the conclusion that, given the evidence from Portuguese municipalities, debt increases in election years. Nevertheless, this is the only factor in the political-ideological circumstances that was found to be relevant in its effect on local authorities’ debt levels. It is also clear that the financial crisis in the period 2008-2010 likewise had a positive impact. The paper contributes to the strengthening of the debate on the association between municipalities’ political circumstances and debt, namely, in regards to strategic (electoral) debt cycles in local government.

Keywords: Debt, Local Government, Political-Ideological Factors, Public Finance

Consumption, inflation risk and dynamic hedging original article

pp. 171-180 | First published in 30 June 2015 | DOI:10.5709/ce.1897-9254.165

Stefan Franz Schubert, Udo Broll


Our study examines the behavior of a risk-averse investor who faces two sources of uncertainty: a random asset price and inflation risk. Both sources of uncertainty make it difficult to stabilize consumption over time. However, investors can enter risk-sharing markets, such as futures markets, to manage these risks. We develop a dynamic risk management model. Optimal consumption and risk management strategies are derived. It is shown that dynamic hedging increases an investor’s welfare in terms of the expected inter-temporal utility of consumption.

Keywords: Dynamic hedging, asset price risk, inflation risk, real wealth, consumption

Financial Sector Reforms and Economic Growth in Ghana: a Dynamic ARDL Model original article

pp. 181-192 | First published in 30 June 2015 | DOI:10.5709/ce.1897-9254.166

Erasmus L. Owusu, Nicholas M. Odhiambo


This paper examines the relationship between financial sector reforms and sustainable economic growth in Ghana. Employing the autoregressive distributed lag (ARDL) bounds testing approach and using GDP per capita as a growth indicator, this paper establishes a long-run relationship between economic growth and financial reforms, which is represented by an index calculated using principal component analysis (PCA). The paper finds that in the long run, financial sector reforms have an insignificant impact on economic growth in Ghana. This supports numerous past studies that have reported mixed or inconclusive results on the effects of financial reforms on economic growth. The paper concludes that increase in capital stock, not financial sector policy reforms, affects economic growth in Ghana. This paper therefore recommends an increase and modernization of capital stock in order to promote real sector growth in Ghana.

Keywords: Africa; Ghana; Economic Growth; Financial Sector Reforms; ARDL Bounds Testing Approach

The Impact of Corporate Social Responsibility on Firms’ Financial Performance in South Africa original article

pp. 193-214 | First published in 30 June 2015 | DOI:10.5709/ce.1897-9254.167

Sukanya Chetty, Rebekah Naidoo, Yudhvir Seetharam


If Corporate Social Responsibility (CSR) activities are beyond a firm’s legal obligations and potentially require a sacrifice in short-term profits, why do firms promote CSR? This question motivates this investigation of the impact of CSR on a firm’s Corporate Financial Performance (CFP). This relationship is examined for the period from 2004 to 2013 in South Africa. We assess the short-term impact of CSR announcements on financial returns of firms included in or excluded from the Johannesburg Securities Exchange Socially Responsible Investment Index and determine whether there is a difference in the long-term CFP between these two groups for the entire period. The event study methodology shows that investors were rewarded in 2004 and 2012, when firms entered the index, and were penalized in 2013, when firms exited the index. When using regression analysis, the various industries provide mixed results between CSR and CFP for firms over the long term. Based on these results, we find that CSR activities lead to no significant differences in financial performance.

Keywords: Corporate Social Responsibility, financial markets, South Africa

Optimal Contracting under Adverse Selection: The Implications of Mentalizing original article

pp. 215-232 | First published in 30 June 2015 | DOI:10.5709/ce.1897-9254.168

Jonatan Lenells, Diego Stea, Nicolai J. Foss


We study a model of adverse selection, hard and soft information, and mentalizing ability—the human capacity to represent others’ intentions, knowledge, and beliefs. By allowing for a continuous range of different information types, as well as for different means of acquiring information, we develop a model that captures how principals differentially obtain information on agents. We show that principals that combine conventional data collection techniques with mentalizing benefit from a synergistic effect that impacts both the amount of information that is accessed and the overall cost of that information. This strategy affects the properties of the optimal contract, which grows closer to the first best. This research provides insights into the implications of mentalizing for agency theory.

Keywords: Adverse selection, mentalizing, hard information, soft information, contract

What You Export Matters: Does It Really? original article

pp. 233-244 | First published in 30 June 2015 | DOI:10.5709/ce.1897-9254.169

Martin Grancay, Nora Grancay, Tomas Dudas


In 2007, Hausmann, Hwang and Rodrik (HHR) demonstrated that export specialization patterns have important implications for economic growth. The authors developed an indicator of income level linked to the country’s exports they called EXPY and showed that higher values of the indicator lead to higher subsequent economic growth. The present paper tests whether HHR’s conclusions are valid even in times of economic crisis and rising prices of primary commodities, using data from 2004-2013. We show that, in the aggregate, higher values of EXPY are connected with faster economic growth. However, the relationship is much more statistically significant in countries that focus heavily on exporting primary commodities than in other countries. This implies that the rising prices of primary commodities in the last decade have altered the traditional link between export sophistication and economic growth. As a result, we argue that EXPY is not a good predictor of future economic performance when the prices of primary commodities are unstable. Policy makers must be aware that, while what countries export is important, it is equally important when they export it: in times of stable prices of primary commodities, a focus on the export of sophisticated goods generates higher economic growth in the future. In times of rising prices of primary commodities, however, the effects can be exactly the opposite.

Keywords: international trade, EXPY, export patterns, economic growth, terms of trade